When the Canadian government put the modernization of Ottawa’s district energy system out to tender through the Energy Services Acquisition Program in 2017, it placed restrictions on the use of long-term private capital, which required the winning consortium, Innovate Energy, to structure the project in a way not done before in the Canadian PPP market.
The project was procured under a design, build, finance, operate and maintain model, pursuant to which the consortium must design and modernize the five heating and cooling plants, finance the five-year modernization phase, and operate and maintain the district energy system for the remainder of the 35-year contract term.
Innovate Energy was selected as preferred bidder in March 2019, beating Rideau Energy Partners in a two-horse race.
To finance the C$2.6 billion contract while adhering to the restrictions on the use of private capital, the consortium obtained a revolving credit facility with six banks committing C$500 million ($349.3 million). There is nominal equity of C$100 million, given that there is no long-term debt.
The structure of the financing preserved the risk-transfer and cost-certainty benefits of the PPP model for the government while providing a scultped risk and payment profile and flexibility to expand the project.
The district energy system heats 80 buildings and cools 67, including parliament buildings. The modernization plan includes converting the heating system from steam to safer and more efficient low-temperature hot water, building, upgrading and decommissioning plants, and switching cooling systems from steam-driven to electric chillers. The original systems were designed and built between 1916 and 1971.
Construction started on the modernization projects in 2019 and the concessionaires plan to be finished by 2025.
Consortium: Engie Services Canada, PCL Constructors Canada, PCL Investments Canada, Black & McDonald, WSP Canada
Architect: BBB Architects Ottawa
Contract value: C$2.6 billion
Concession term: 35 years
Nominal equity: C$100 million
Revolving credit facility: C$500 million
Closing date: May 29
Lenders: ATB Financial, Bank of Nova Scotia, Desjardins, HSBC, SMBC, TD Bank
Financial adviser to government: PwC
Financial adviser to consortium: TD Securities
Government’s counsel: Norton Rose Fulbright
Consortium’s counsel: Davies
Lenders’ counsel: Fasken
Independent oversight: EY
Technical and design consultant to government: Stantec
Lenders’ technical adviser: BTY
Insurance consultant: Marsh
Fairness monitor: Knowles Consultancy
See all of the 2019/2020 awards